Apple Buys Chip Designer

by Erika Brown, Elizabeth Corcoran and Brian Caulfield 04.23.08, 12:15 AM ET
BURLINGAME, CALIF. -

Late Tuesday, in response to questions from Forbes.com, an Apple spokesman said Apple has agreed to buy a boutique microprocessor design company called PA Semi. The company, which is known for its design of sophisticated, low-power chips, could spell a new future for Apple's flagship iPhone, and possibly iPod products as well.

The 150-person chip company, P.A. Semi, was founded in 2003 by Dan Dobberpuhl, who was a lead designer for the well-regarded Alpha and StrongARM microprocessors developed by Digital Equipment in the 1990s.

"Apple buys smaller technology companies from time to time, and we generally do not comment on our purposes and plans," said Apple spokesman Steve Dowling. He declined to comment on the value of the deal, which a person familiar with the deal suggested was done for $278 million in cash. Apple is due to announce its quarterly earnings Wednesday.

The decision to center the iPhone design around a chip that Apple could own marks a significant strategic choice by Apple Chief Executive Steve Jobs, and is aimed at ensuring Apple can continue to differentiate its flagship phone as a raft of competitors flood the market. According to a source affiliated with the chip company, Jobs and Senior Vice President Tony Fadell led the tiny group of executives who spearheaded the acquisition, which included negotiations that took place in Jobs' home.

Apple's choice is a blow for chip maker Intel, which has been trying to convince Cupertino, Calif.-based Apple to rely on Intel's chips--particularly its latest low-power line up, called Atom.

Apple has been rightfully proud of the iPhone, and has predicted that it will sell 10 million of the devices by the end of 2008. But that success has had a cost, too: Virtually every mobile-phone maker is scrambling to develop an iPhone-like device. Jobs has long asserted that Apple's greatest strengths lay in its software and in its ability to integrate hardware and software. The result: Machines that combine appealing design with an intuitive user interface, such as the iPhone. But interfaces--as Jobs well knows--can be mirrored, if not copied.

Few in the high-tech world are as wary as Jobs of turning control of core components over to a partner. The PC industry has been his proving ground; over the past three decades, he has watched numerous PC makers that have built their products around Intel's microprocessors wind up in fierce battles for narrower and narrower profit margins.

Led by Intel Chief Executive Paul Otellini, Intel is developing a line of chips that it believes can become as central to handheld computing devices as its "x86" chips have been to the personal computer industry. Intel has said it aims to create somewhat different lines of Atom processors tailored to different classes of applications, such as consumer devices, low-cost notebook computers and set-top boxes. The first of these designs is slated to begin shipping by the middle of this year; another by year's end.

But that doesn't mean Intel wants to create a unique chip for every customer--even for a charismatic customer like Apple.

Apple first got to know the designers at P.A. Semi about three years ago, when the computer maker still used PowerPC chips in its Macintosh computers. Dobberpuhl and his team, which includes engineers who had a hand in designing powerful chips, including Intel's Itanium, Advanced Micro Devices' Operton and Sun Microsystems' UltraSparc. Dobberpuhl was also the lead designer on a DEC chip project called StrongARM, which was ultimately folded into Intel after DEC collapsed. Intel tried to use the design as the basis of chips for the smart-phone industry, but eventually sold that group to Marvell.

Dobberpuhl wanted to design an enormously powerful chip, based on the PowerPC architecture, that used little power. When Apple decided to quit using the PowerPC chip in favor of Intel microprocessors, the conversations with P.A. Semi petered out.

In February 2007, P.A. Semi debuted a 64-bit dual core microprocessor which the company asserted was 300% more efficient than any comparable chips. It consumes only 5 to 13 watts running at 2 gigahertz. Telecommunications, networking and wireless companies embraced P.A. Semi's work.

Meanwhile, Apple found a collection of other chip partners to build the guts of its iPhone. One key: According to technology market research firm iSuppli, South Korean electronics giant Samsung supplies the iPhone's applications processor. Like a number of companies cranking out processors for mobile phones, such as Texas Instruments, Samsung's processor is based on a design licensed from Cambridge, U.K.-based ARM. Apple was among the three companies, also including Acorn Computers and VLSI Technology, that formed ARM in 1990.

Texas Instruments, Qualcomm and Broadcom are also fighting for share in the low-power applications processors for smart phones and mobile gizmos based on ARM designs, according to iSuppli analyst Tina Teng, with Texas Instruments leading the pack. These companies are building increasingly sophisticated processors, however, targeted at bigger and more powerful devices. "Companies like Qualcomm are trying to diversify themselves and move away from being a pure wireless company into these ultra mobile PCs, or ultra mobile Internet devices," Teng says.

Trevor Yancey, vice president of technology at IC Insights of Scottsdale, Ariz., sees ARM-based designs giving Intel a tough fight as Intel tries to push beyond notebooks and into smaller and smaller devices. "That's going to be a tough battle. If you look at the ARM core--where it has been and where it has come from--the ARM core is very well entrenched in those kinds of applications," Yancey said. "I think the gap between the two is certainly closing, but ARM is still developing at a fast pace."

Although no current Apple products use P.A. Semi chips, Apple executives kept a close eye on the work of the start-up. Talks of acquiring P.A. Semi began only in the past few weeks. Employees have been notified of the deal.

It will likely take at least a year before products incorporating P.A. Semi designs are ready. The company's flagship chip is at the heart of heavy-duty computing systems, such as those sold by NEC's storage division. But the design philosophy--hefty processing power and frugal power use--are in concert with Apple's directions. Although Apple plans to continue supporting P.A. Semi's current customers, insiders suggest that Jobs plans to use future P.A. Semi chips exclusively within Apple products.

At that point, executives believe the company will have created a unique asset--a powerful microprocessor that sips power lightly and so can support just about any imaginable applications Apple's software gurus can imagine.

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Column: Searching For True Innovators

BURLINGAME, Calif. -Mirror, mirror on the wall, who's the most innovative of them all?

Google?

Apple?

The answer to that question will be measured in the hundreds of millions--hundreds of millions of consumers, devices and eventually dollars--or, more appropriately, some other currency that isn't falling through the floor.

The device of this generation is clearly the mobile phone. Every company worth its market cap is scrambling to figure out how to make itself fundamental to the delivery of information via a handheld device. We are at that sweetly transitional moment in an industry when innovation truly counts, when consumers buy a product because it delights or serves them--not just because sticking with what they have is far easier than switching to something new.

Both Google and Apple have whole new categories of products. But the phone industry already exists: The type of innovation required in this case goes by the catchy name of "cross-boundary disruption."

I can't take credit for the phrase. There's a wily guy over at the Stanford Business School who is giving some 30 graduate students a tutorial on how to break into somebody else's business. His name is Andy Grove. (You thought Grove had retired? Guess again. He just has different intellectual stomping grounds these days.)

A few days ago, I slipped into the class Grove teaches jointly with his longtime Stanford collaborator, Robert A. Burgelman, to get an earful of what it means to innovate in a field that already exists. Their class is scrutinizing a number of industries: energy--particularly the automobile industry--media, health care and telecommunications.

Grove and Burgelman offer up a checklist of symptoms of an industry ripe for disruption. Among them: Is it a slow-growth industry? Is there little business model innovation? Are there incumbents who have established "rules" for the industry.

"Disrupters" to that status quo typically show up from other industries. They need to have enough scale and resources to make a real difference. This isn't a game for low-budget startups; you've got to have enough muscle to make a dent in a field where there are giants. Disrupters are hungry. They're risk takers. And most important, they are not prisoners of their own prejudices and past decisions--a newcomer to a field can see the problems of a static old industry differently.

Both Apple and Google were enormously innovative during their early days. Both created industries.

But only Apple, so far, has shown it can hurdle industry boundaries and shake up a staid market--namely, the market for portable music.

The secret weapon Apple brought to music? Putting all the pieces together seamlessly using the power of software.

Other companies, starting with Sony, made portable music players. They made tiny ones, pretty ones, powerful ones. But all those differences were based largely on the look and feel of the device.

Apple's iPod is lovely to hold. But Apple's deep insight was that the innovations that could reshape music players weren't based in mechanics or hardware. It's software that lets people sync their iPod to their computer, to shuffle songs, to manage playlists and so on. "Software" becomes a code word for describing the way we organize information in our world.

Fast-forward to mobile phones: The fundamental difference between the iPhone and everyone else's phone, once again, has also been in how Apple organizes the myriad of functions and resources on the phone--again, software. The rest of the device--even the lovely big screen--is just a window into how Apple thinks about organizing the world.

Google thinks about--and organizes information--differently than Apple. Next week, we're likely to see how Google would organize the world's information and deliver it to a small device, formerly called the "cellphone." Google also likes to move with a caravan of developers and fans around it. Certainly the company's recent announcements about building an open environment for those who develop applications on social networks underscores Google's desire to capitalize on the power of the crowd.

Grove's class hasn't finished analyzing the emerging phone market. They have some good ideas of what helped Apple triumph in one new market, but the school year will be over before we have data that reflect what consumers deem the most compelling innovations in this arena.

But one element is clear: Consumers will benefit from such cross-boundary disruptions, in mobile communications and elsewhere.

http://www.forbes.com/technology/2007/11/02/apple-google-iphone-tech-cx_ec_1105innovate.html

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Column: Darwin In Your Palm

Letter From Silicon Valley

Burlingame, Calif. -Talk about watching evolution in process.

A bevy of new devices are emerging, machines smaller than a laptop computer, bigger than a cellphone. Like variations of Darwin's finches, each of these is evolving its own specialty:

--Steve Jobs' iPhone will let you talk.

--"Mobile PCs," based on Intel's chips, will let you run the software written for PC on lightweight, portable machines.

--The "Foleo," Palm's new machine created by Palm Pilot and Treo inventor Jeff Hawkins, aims to be a "mobile companion" that sits somewhere between a PDA and a full-fledged laptop.

Each of these design efforts--and I'm sure there are scores more--are scratching away at the environment, trying to figure out what it will take to survive. What will consumers (and businesses) buy? At what price? With what usage caveats?

No one better channels consumers' longing to be cool than Steve Jobs and Apple. In the business world, Palm's Jeff Hawkins is Jobs' separated-at-birth twin: Twice before, Hawkins has proven that he can translate our hazy desires to break free of our desks into silicon and plastic.

(Full disclosure: This week, Elevation Partners, which owns a portion of Forbes, said it was investing in Palm. Fuller disclosure: Elevation didn't whisper a word about the deal to us before it was announced. Darn.)

But what gives me absolute confidence that something like these devices will exist are not just these electronic artists--but the armies of unrecognized design and manufacturing engineers who are steadily building the silicon chips that will power these emerging devices.

Take Intel: Executives there say that they believe the company's future lies with "system on chips," effectively special-purpose microprocessors tuned to carry out specific tasks.

Even more experienced in this area is Texas Instruments. I didn't include TI in my list at the top because TI's chips are used in such a diversity of cellphones and handheld machines. For a decade or so, Texas Instruments has been steadily building an entire ecosystem of design around its platforms. Constellations of companies in India, China and elsewhere are building special-purpose chips on top of TI's design architecture.

Bottom line: If you can dream it up, somebody can make a chip that will make it work.

Fundamental to this equation are the "foundries," the massive chip manufacturing facilities run by companies as diverse as Taiwan's TSMC, China's SMIC and Chartered, even IBM. Chip fabs have been around for decades, of course. But what's different now is the ease with which they can make literally hundreds of different products at once.

Enormously complex manufacturing software--go ahead, call it artificial intelligence software--mean that these factories can be programmed to stamp out very diverse designs. Relatively small batches of design suddenly have inherited many of the cost advantages that once blessed a single design.

Are you old enough to remember the heyday of Xerox PARC, when it was an incubator for astonishing ideas? The guiding design philosophy of those days, as I recall, was simple: Do away with a constraint. Pretend that a key--but expensive--component has become free. Pretend bandwidth is free. Pretend silicon is free.

Silicon chips are almost free. The limitation now is software. Jobs, Hawkins and for that matter, companies like Intel, must all be scrambling to figure out how to inspire software designers to write applications that will make their devices sing.

Prepare to see scores and scores of devices. That much is clear. The billion dollar question in the balance is one of evolution: Which one--or ones--will dominate?

I'm starting to morph this column into more of a blog-like conversation rather than a classic piece of reporting. Your comments are most welcome; you can send me a note at ecorcoran@forbes.com. If you do, please let me know if I can share your comments with readers.

http://www.forbes.com/2007/06/05/palm-foleo-iphone-tech-cz_ec_0605mobile.html?partner=yahootix

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Column: Why Apple Won

Letter From Silicon Valley

10.23.06, 6:00 AM ET

Burlingame, Calif. -The best piece of management advice I’ve ever heard came from a boss who said his job was to set the bar for performance incredibly high and cheer like crazy for his employees to clear it.

I thought of that advice this past week as I set my iPod to “shuffle,” and flipped through a new book on the iPod and that sultan of Silicon Valley, Steve Jobs. The Perfect Thing: How the iPod Shuffles Commerce, Culture and Coolness, by veteran journalist Steven Levy, is a gushy but fascinating set of essays about the iPod. (Levy and his publisher have taken iPod’s “shuffle” motif to heart: Every copy of the book starts with the same essay, entitled “Perfect.” The next eight essays, however, are “shuffled” and so appear in different orders in different copies of the book.)

Every great company starts with some phenomenal product. The hard part is doing it again, and again, and again.

Google's big breakthrough was its search engine. Since that smash hit, Google has been vacuuming up talent and then giving them enormous latitude. (See: "Who's Really Running Google?") Managers encourage engineers to spend about 20% of their time on projects they’re passionate about. This lets Google crank out dozens of new products and widgets a year, but few have had much impact. And the company's most notable new products are ones that started outside the Googleplex : GoogleEarth and now YouTube.

What has been most remarkable about Apple Computer under the steely scrutiny of Steve Jobs is the number of genuinely big hits the company has rolled out. It certainly has not invented everything it sells. But because we’ve seen Apple with Jobs and without, the company is almost a laboratory experiment of the role of top management in turning an idea into a “perfect” thing.

In his book, Levy vividly chronicles the story of the birth of the iPod in the essay entitled “Origin.” The first team of engineers who tried to squeeze a thousand songs into a gadget that fit in your pocket was a team from Digital Equipment’s Palo Alto, Calif., research division. (Interesting historical note: A group of engineers in that same lab also invented a marvelous search engine called AltaVista, which, before Google, was topnotch.)

Other companies, both in the U.S. and Asia, were scrambling to create small MP3 music players. Still others were working on software that would simply let Macintosh computers play MP3s. None of this was going on at Apple.

By June 2000, Apple executives, starting with Jobs, realized that they would be missing a big opportunity if they didn’t jump into the music business. Apple snapped up one tiny company that had written Mac-based music software. What was missing from that product, Levy writes “was the trademark conviviality that characterizes just about everything that Apple does. Steve Jobs would not tolerate a program that was ugly or acted ugly.”

For music aficionados--and Jobs counts himself as one--playing music on computers wasn’t good enough. (Most of the speakers were lame.) None of the first flush of MP3 players was good enough. The only answer was to build a player that would be not just good enough but awesome.

Levy’s account has all the great details--how Apple contracted with an outside developer to put together a prototype, how Apple strong armed the guy into working full time for the company. (“I’m doing this for your own good,” Apple executive Jon Rubinstein loftily told the engineer, who would have preferred to make up his own mind.)

Where does Jobs come in?

At every go or no-go checkpoint. On every detail. Engineers were told to finish “builds,” in-process prototypes of software and hardware, on Fridays instead of more typical midweek deadlines. “I think ... they were giving the build to Steve, who would take it home for the weekend and play with it,” one engineer told Levy. Mondays started with long “to fix” lists.

“Steve would be horribly offended [if] he couldn’t get to the song he wanted in less than three pushes of a button,” another engineer said.

“Jobs certainly has an aesthetic that permeates the whole company,” Levy told me, when I asked him about Jobs’ influence on the iPod. “He can be super, super critical--it can be very frustrating to work with him.”

There are more than a few stories about people who worked their hardest on a project only to have the results razed in a review with Jobs. “Yet after a horrible evaluation, you crawl back to your office and try again--and this time, you surpass what you thought you could do,” Levy says.

Ideas can germinate anywhere. Getting you to surpass what you thought you could do is ultimately the job of top management. Somebody has got to hold up that bar insanely high. That can make for an agonizing work environment or an inspiring one, depending on how the critiques are delivered.

Just remember to cheer like crazy.

http://www.forbes.com/digitalentertainment/2006/10/20/ipod-itunes-jobs-tech-media-cz_ec_1023valleyletter.html

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